IDEA CELLULAR LIMITED ANNUAL REPORT

Transcription

1 IDEA CELLULAR LIMITED ANNUAL REPORT

2 Mr. G. D. Birla and Mr. Aditya Birla, our founding fathers. We live by their values. Integrity, Commitment, Passion, Seamlessness and Speed

3 The Chairman s Letter to Shareholders Dear Shareholders, The Indian mobility sector witnessed robust growth during the year. The total mobility subscribers, as on March 2009, stood at 392 million, registering an annual growth of around 50%. The low cost of entry and service, coupled with the deeper penetration of the network, have been the main drivers of the sector growth. Your Company had an excellent year, with consolidated revenue crossing the Rs. 100 billion mark. Its revenue at Rs billion, is up by 51% over that of the previous year. Even after the exclusion of revenue from the new service areas of Mumbai and Bihar, and from the joint ventures Spice and Indus, the annual revenue growth from older service areas is around 46%. This growth, coming on the back of the earlier year s revenue growth of 54%, marks IDEA as India s fastest growing major telco over the last two years. The net profit, for the year, stood at Rs. 8,816 million. Your company, during the financial year , launched services in Orissa, Tamil Nadu (including Chennai), Jammu & Kashmir, Kolkata and West Bengal. With the imminent launch of services in Assam and North East service areas, your Company, alongwith its subsidiary and joint venture, will become a Pan India operator, befitting its stature and potential. Among other accolades, your company has been selected by the Economic Times as the Emerging Company of the Year for The calendar year 2009, has seen overcapacity hitting the Indian telecom sector, largely due to the investment decisions of , both from cross-over licensees and new licensees. This has inevitably lead to a phase of hyper competition. Your company has anticipated and prepared itself for this phase. Your company is strongly placed in its established service areas, while the approach for some of the new service areas is measured. I believe based on this well-crafted strategy, advantage of spectrum and scale, sophisticated management processes, brand strength, human capital and strong balance sheet, your Company will emerge even stronger through this phase.

4 The Aditya Birla Group: In Perspective Today, we manage multinational teams 1,30,000 employees, comprising 30 nationalities, across 25 countries, anchor our US$ 29.2 billion meritocratic conglomerate. Our values Integrity, Commitment, Passion, Seamlessness and Speed, is the thread that strings us together. Post our Group being declared the Best Employer in 2007 by the Hewitt / Economic Times / Wall Street Study, our brand as an employer continues to grow strongly. More than 8,000 leading professionals from India and globally have teamed up with us. Our rigorous assessment process, inclusive of Development Assessment Centres, assesses our people early in their career on their potential to hold leadership roles. This way, we have ensured that we have a robust bench strength of talent. We also use short term secondments and long term assignments to develop the capability of our people to work across borders. This year over 1,700 colleagues have been job rotated. Over 80% of our businesses have participated in a compensation benchmarking exercise this year and we have taken significant corrective and proactive measures to stay competitive and attractive. This positioning will further help us to attract and retain the right talent. We lay great emphasis on continuous learning through our in-house learning university Gyanodaya. This globally benchmarked institution leverages resources from around the world to meet the development needs of our people. Over a 1,000 executives have taken courses this year. Additionally, more than 14,000 employees spread across the world, from Farmington Hills in USA to Giza in Egypt to Perth in Australia and Renukoot in Uttar Pradesh have used Gyanodaya s E-learning platform called GVC. GVC prides itself in having a course completion ratio of 90%, which is a world benchmark. As perhaps many of you may be aware we track the organisational climate every two years. We use the Organisational Health Survey (OHS), as the barometer of employee engagement at work. It is conducted by Gallup. Over 22,000 executives, across 17 businesses, spanning 25 countries and 750 cities/interiors participated in the OHS6. The participation level at 94%, according to Gallup, is a benchmark. 83% of the employees surveyed in the OHS6 said that they are proud to be an employee of the Aditya Birla Group and get professional satisfaction working here. 67% of our management employees have clearly emphasized their confidence in the ability of the leaders at various levels to successfully manage the emerging challenges that the Group is facing. Almost three-fourths of our employees (73%) have stated that they would definitely advocate our Group as a place to build a meaningful career. Going forward, I would like to emphasize that the brand of leadership that we seek to build combines the virtues of professionalism with the commanding power of the mind, heart and soul. The mind which has the intellect to perceive the right from the wrong, the heart which has an emotional bond with the organisation that cannot be severed, and a soul that is indomitable. Our biggest strength has been an emotional bonding that our employees have with the Group that makes the paradigm of duty truly boundaryless. Best Regards, Kumar Mangalam Birla

5 Table of Contents 1 Corporate Information 3 Performance Highlights 5 Management Discussion and Analysis 8 Directors Report 16 Report on Corporate Governance 26 Auditors Report 30 Balance Sheet 31 Profit and Loss Account 32 Schedules to the Accounts 54 Cash Flow Statement Consolidated Financial Statements 57 Auditors Report 58 Consolidated Balance Sheet 59 Consolidated Profit and Loss Account 60 Schedules to the Consolidated Accounts 81 Consolidated Cash Flow Statement 83 Statement relating to Subsidiary Companies

6 Corporate Information Board of Directors Mr. Kumar Mangalam Birla Mrs. Rajashree Birla Dr. Rakesh Jain Dr. Shridhir Sariputta Hansa Wijayasuriya Mr. Biswajit Anna Subramanian Mr. Arun Thiagarajan Mr. Gian Prakash Gupta Mr. Mohan Gyani Ms. Tarjani Vakil Mr. R.C. Bhargava Mr. P. Murari Mr. Sanjeev Aga Chairman Non Executive Director Non Executive Director Non Executive Director Non Executive Director Independent Director Independent Director Independent Director Independent Director Independent Director Independent Director Managing Director Chief Financial Officer Mr. Akshaya Moondra Company Secretary Mr. Pankaj Kapdeo Auditors Deloitte Haskins & Sells Chartered Accountants 706, B Wing, ICC Trade Tower, Senapati Bapat Road, Pune Registered Office Suman Tower, Plot No. 18, Sector No. 11, Gandhinagar Gujarat Corporate Office Windsor, 5th Floor, Off CST Road, Near Vidya Nagari, Kalina, Santacruz (East), Mumbai Registrar and Share Transfer Agents M/s. Bigshare Services Private Limited E/2 Ansa Industrial Estate, Saki Vihar Road, Saki Naka, Andheri (East), Mumbai Website 1

7 Performance Highlights at a glance Gross Revenue EBITDA INR bn INR bn FY 05 FY 06 FY 07 FY 08 FY 09 0 FY 05 FY 06 FY 07 FY 08 FY 09 Net Profit Cash Profit INR bn FY05 FY06 FY07 FY08 FY09 INR bn FY05 FY06 FY07 FY08 FY09 3

8 Annual Report Management Discussion and Analysis Report Sector growth The Indian mobility sector witnessed a growth of around 50% in subscriber terms during the financial year The sector reported 392 mn subscribers as of March 31, Expanding telecom networks, falling tariffs and continued reduction in handset costs, remained the key drivers for this growth. With wireless penetration level at 34%, the Indian wireless market offers an attractive growth opportunity. The subscriber base under brand!dea, increased from 24 mn as of end March 2008 to mn as of end March 2009, a growth of around 79%, taking its national market share to 11%. Regulatory Major regulatory developments for the period are: DoT amendment on Intra Circle Roaming On June 12, 2008, the DoT amended license terms, allowing a licensee to enter into agreements with other service providers within the same service area for the purpose of intra-circle roaming. WPC order on Microwave Spectrum Charges The WPC, on November 10, 2008, specified the microwave spectrum charges for 7th to 11th carrier. The DoT had earlier revised the microwave spectrum charges vide its order dated November 3, 2008, wherein charges for a maximum of 6 carriers were specified. The order was made effective from November 3, 2006, thus increasing the charges applicable to operators holding more than 6 access spectrum carriers (access & backbone separately), retrospectively. Amendment to Interconnect Usage Charges (IUC) Regulation On March 9, 2009, TRAI released the Interconnection Usage Charges (IUC) Xth Amendment. Accordingly, with effect from April 1, 2009, termination charges for incoming calls stood reduced to Re per minute from Re per minute, while the termination charges for international incoming calls stood increased from Re per minute to Re per minute. Amendment relating to lock-in of promoters equity On July 23, 2009, the DoT issued the conditions for sale of equity by promoters of a UAS licensee company. As per the amendments, there shall be a lock-in period for sale of equity of a person whose share capital is 10% or more in the UAS licensee company on the effective date of UAS license and whose net-worth has been taken into consideration for determining the eligibility for grant of UAS license, till completion of three years from the effective date of the UAS license or till fulfillment of all the rollout obligations under clause 34 of the License Agreement, whichever is earlier. However, the provision of lock-in period shall not apply, in pursuance to enforcement of pledge by the lending financial institutions/banks in the event of default committed by the UAS licensee company. Implementation of Mobile Number Portability (MNP) The DoT, on August 1, 2008, issued guidelines for the MNP license. As per the guidelines, the country has been divided in two MNP zones for grant of licenses, with 11 licensed service areas in each zone. On March 20, 2009, the DoT signed the MNP operator license with M/s. Syniverse Technologies (Zone I) and M/s. MNP Interconnection Telecom Solutions (Zone II), giving six months for MNP implementation in Metro service areas and Category A service areas, and one year for other service areas. The DoT on May 6, 2009 has issued amendments to all CMTS/ UASL/ NLDOs/ ILDOs seeking implementation of MNP in all Metro/ Category A service areas latest by September 20, 2009, and the other service areas latest by March 20, However, on September 3, 2009, DoT has extended the time frame for implementation of Mobile Number Portability by 3 months. The new date for implementation of Mobile Number Portability for Metro and Category A service areas is December 31, Timelines for auction of 3G and BWA Spectrum The DoT, on October 23, 2009 released a revised Information Memorandum for auction of 3G / BWA Spectrum. As per the revied schedule, auction of 3G / BWA Spectrum will commence on January 14, Discussion on Consolidated Financial Statements and Operational Performance Subscriber Base As on March 31, 2009, brand!dea had an aggregate of mn subscribers, including subscribers of Punjab and Karnataka service areas operating under Spice Communications Limited, and the Bihar (including Jharkhand) service area operating under Aditya Birla Telecom Limited, representing an increase of 79.3% compared to the subscriber base of mn as on March 31, Service and Sales Revenues Growth in service revenues was 50.8% from Rs. 67,200 mn in the previous financial year to Rs. 101,313 mn for the year ended March 31, Value Added Services grew by 69.0% over the previous year. Revenues from National Long Distance services accounted for approximately Rs. 7,111 mn, which stood eliminated during of inter segment consolidation. Operating Expenses During the year ended March 31, 2009, the Company incurred Operating Expenses of Rs. 73,179 mn representing 72.1% of total revenues. The chief contributors to the total Operating Expense of 72.1% were, Personnel Expenditure 5.2%, Network Operating Expenses 20.8%, License and WPC charges 11.1%, 5

9 IDEA CELLULAR LIMITED Roaming and Access Charges 18.2%, Subscriber Acquisition and Servicing Expenses 8.1%, Advertisement & Business Promotion Expenditure 4.5%, and Administration and Other Expenditure 4.1%. Profit before Interest, Depreciation and Amortisation For the year ended March 31, 2009, the Company had a Profit before Interest, Depreciation and Amortisation of Rs. 28,364 mn, a growth of 25.0% compared to the previous year. The operating profit margins for the current financial year and for the previous financial year stood at 27.9% and 33.7% respectively. Depreciation, Amortisation and Finance Charges During the year ended March 31, 2009, Depreciation & Amortisation expenses increased by 60.0% to Rs. 14,028 mn as against Rs. 8,768 mn for the previous year. Net finance charges for the year increased by 78.1% from Rs. 2,776 mn to Rs. 4,945 mn, due to increased borrowings and foreign exchange fluctuations. Profits and Taxes Cash Profit from operations for the year ended March 31, 2009 stood at Rs. 23,313 mn, showing an increase of 17.5% over the previous year. The Profit before Tax for the year stood at Rs. 9,391 mn. The tax charge for the year, mainly due to deferred tax charge, stood at Rs. 576 mn. The net profit for the year ended March 31, 2009 was Rs. 8,816 mn, resulting into a net profit margin of 8.7%. Capital Expenditure During the year ended March 31, 2009, the Company incurred capital expenditure of Rs. 66,857 mn. Balance Sheet During the current financial year, shareholder funds increased by Rs. 88,372 mn, largely due to a preferential issue of equity by the Company, and the issue of Compulsorily Convertible Preference Shares (CCPS) by one of its subsidiary companies. This has led to strengthening of the balance sheet, which in turn provides potential for further debt leveraging for any future requirement. The Gross Block stood at Rs. 205,234 mn, and Net Block including Capital Work in Progress (CWIP) stood at Rs. 166,672 mn as at March 31, Treasury investments in mutual funds increased by Rs. 14,892 mn during the year and stood at 20,452 mn as at March 31, Net Current Assets stood at Rs. 13,324 mn as at March 31, 2009, mainly due to investment of surplus funds in fixed deposits with banks. The carried forward closing debit balance of the Profit and Loss Account is Rs. 5,263 mn as at March 31, Human Resources The Company through its participative work environment, skill development activities, and by championing the values of 6 commitment, integrity, passion, seamlessness and speed, promotes strong bonding with its employees. During the year, it has again undertaken sharing of value creation by granting another tranche of employee stock options to the eligible employees. The findings of Organisation Health Study (OHS) have been analysed, which are very encouraging, and concern areas are being suitably addressed. The employee strength on rolls stood at 6,481 as on March 31, Risk Management The Risk Management framework of the Company ensures, amongst others, compliance with the requirements of Clause 49 of the Listing Agreement. The framework establishes risk management across all service areas and functions of the Company, and has in place procedures to inform the Board Members about the risk assessment and minimization process. These processes are periodically reviewed to ensure that the management of the Company controls risks through a defined framework. The various risks, including the risks associated with the economy, regulations, competition, foreign exchange, interest rate etc., are monitored and managed effectively. Internal Control Systems The Company has appropriate internal control systems for business processes, covering operations, financial reporting and compliance with applicable laws and regulations. Clearly defined roles and responsibilities for all managerial positions drive adherence of defined processes. Operating parameters are monitored and controlled. Regular internal audits and checks ensure that responsibilities are executed effectively. The audit committee of the Board of Directors actively reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening them, as appropriate. Opportunities, Risks, Concerns and Threats The strong growth in the sector continues, mainly due to expansion of telecom networks to rural India, the reduced cost of entry and the reduced cost of handsets. Low penetration, more particularly in rural India, provides opportunity for further growth, and your company, an incumbent GSM player with 900 MHz spectrum in about half of India, is well positioned to tap this opportunity. The telecom sector has witnessed increasing competition towards the end of financial year and the first half of financial year New launches are coming both from CDMA operators with crossover spectrum, and new licensees. These new launches, alongwith the expansion of some regional players, has created major overcapacity in the sector, which in turn has lowered tariffs. However, your company, based on the inherent advantage of spectrum and scale, brand strength and sophisticated management processes, is in a position to emerge even stronger through this phase of hyper competition and sector overcapacity. The telecom sector is characterised by change in technology. Competition from new technologies is an inherent threat. While

10 Annual Report the planned 2100 MHz spectrum auction for 3G services will lead to additional cash outflow, it will also open new revenue streams. The Company s strong balance sheet and market standing, positions it to participate effectively in such auction. The Company requires certain approvals, licenses, registrations and permissions for operating its business. In addition, regulators may amend license conditions, norms for spectrum allocation, spectrum charges, merger & acquisition rules etc. which may have a significant impact on the Company s business. The Company, however, is hopeful that the policy changes will be equitable. The Company s business is dependent on key vendors to supply critical network equipment and services. Besides, its ability to provide quality mobile network and expanding its area of operations and the subscriber base is also dependent on the spectrum allocation by the government. The Company believes in partnering with vendors who are of international repute, and with whom it builds long term relationships. Outlook The competitive intensity in the telecom sector has accelerated during the last three quarters, and is likely to increase with new launches creating further overcapacity, placing pressure on margins. However, it is anticipated that market forces will eventually work the overcapacity out of the sector. The Company focuses on strengthening its position in 900 MHz service areas, by exploiting its advantages of scale and spectrum, while in the newer service areas it follows a disciplined and measured approach. The Company is fully equipped for this phase of intense competition, and expects to emerge competitively stronger. The telecom sector will continue to demonstrate attractive long term opportunities for strong operators. Cautionary Statement Statements in the Management Discussion and Analysis describing the Company s objectives, projections, estimates, expectations may constitute a forward-looking statement within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company s operations, include economic conditions affecting demand/supply and price conditions in the domestic markets in which the Company operates, changes in the Government Regulations, tax laws and other statutes and other incidental factors. 7

11 IDEA CELLULAR LIMITED Directors Report Dear Shareholders, The Directors are pleased to present the 14 th Annual Report, together with the audited financial statements of your Company, for the financial year ended March 31, Financial Results Financial highlights of the consolidated Statement of Operations of your Company for the financial year are: (Rupees in Million) Particulars Income from Services 101,313 67,200 Other Income Total Revenue 101,544 67,374 Operating Expenses 73,180 44,682 EBITDA 28,364 22,692 Depreciation and Amortization 14,028 8,768 EBIT 14,336 13,924 Interest and Financing charges 4,945 2,776 EBT 9,391 11,148 Taxes Net Profit after Tax 8,816 10,423 Balance brought forward from previous year (14,079) (24,502) Carried forward Loss (5,263) (14,079) During the year ended March 31, 2009, gross revenues grew by 50.7% to Rs. 101,544 mn from Rs. 67,374 mn for the year ended March 31, Your Company registered a net profit of Rs. 8,816 mn against a net profit of Rs.10,423 mn in Dividend As your Company does not have distributable profits as on March 31, 2009, your Directors have not recommended any dividend for the year. Review of Consolidated Operations Your Company recorded an increase of 79% in its subscriber base from mn as of March 31, 2008 to mn as of March 31, Your Company has increased its subscriber market share from 9.2% in to 11% in on a national basis. The total Minutes of Usage have more than doubled from 86 bn minutes in to 175 bn minutes in Share Capital During the year under review, the Authorised Share Capital has been increased by Rs. 25,000 mn to Rs. 82,750 mn. Further, the Paid-up Equity Share Capital of the Company increased by Rs. 4, mn on account of preferential issue of 464,734,670 Equity Shares of Rs. 10/- each to TMI Mauritius Limited, a subsidiary of Axiata Group Berhad, Malaysia (formerly known as TM International, Berhad). 8 Capital Expenditure Your Company continues its aggressive network expansion for enhanced coverage and improved quality experience to the customer. Your Company incurred a capex of Rs 66,857 mn during the financial year As a result, cell sites of the Company have increased from 24,793 as at end March, 2008 to 49,860 as at end March, The Company also made significant progress in rolling out its National Long Distance (NLD) network and as at end September, 2009, it carried about 51% of its captive NLD traffic. Employee Stock Option Scheme Your Company has formulated and implemented the Employee Stock Option Scheme 2006 (ESOS-2006). During the year under review, the ESOS Compensation Committee granted 6,131,250 options on July 24, 2008, as a second tranche to the eligible employees of the Company. Each option is convertible into one Equity Share of the Company upon vesting. These options will vest in 4 equal annual installments after one year of the grant and shall be exercisable within a period of 5 years from the date of the vesting. Out of the total options granted, 2,655,000 options and 454,750 options lapsed out of the options granted in first and second tranches respectively. As on March 31, 2009 the outstanding options are 22,952,500. Details of the options granted under ESOS 2006 upto March 31, 2009, and other disclosure in compliance with Clause 12 of Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines 1999, are set out in Annexure A to this Report. Human Resources Your Company continuously invests in fostering people development, identifying and grooming management talent, and has a culture of harnessing employees potential to the maximum. Awards and Recognitions Your Company has been selected as Emerging Company of the Year for 2009 by The Economic Times, arguably Corporate India s pre-eminent awards. This award is a recognition of the strides made by your company in recent years. Significant Developments: Investment in Spice Communications Limited During the year under review, the company acquired 40.8% stake in Spice Communications Limited (Spice), having operations in Punjab and Karnataka service areas, from MCorp Global Communications Private Limited (MCPL), the erstwhile promoters of Spice. Further, the Company alongwith TMI India Limited, TMI Mauritius Limited, Axiata Group Berhad (formerly known as TM International Berhad) and Green Acre Agro Services Private Limited, collectively referred to as the acquirers had made a public offer to acquire upto 20% equity stake in Spice from other public shareholders. The said offer opened on September 17, 2008 and closed on October 6, The acquirers made the payment on October 15, 2008 to all the eligible shareholders of Spice who had validly tendered their shares

12 Annual Report under the said offer. Consequently, the stake of the Company in Spice stands at 41.09% as of date at a cost of Rs. 22, mn. The Company has paid a Non-Compete Fee of Rs. 5, mn to MCPL, pursuant to the Non-Compete Agreement entered into as a part of the acquisition. Further, pursuant to a separate Scheme of Arrangement approved by the Hon ble High Court of Gujarat at Ahmedabad on August 31, 2009, the Non-Compete fee paid to MCPL has been debited to the Profit and Loss Account and setting off by withdrawal of equal amount from the balance in Securities Premium Account, as explained in the relevant note to the Accounts. Your Directors wish to inform that a Scheme of Amalgamation of Spice with the Company has been filed with the Hon ble High Court of Gujarat at Ahmedabad by the Company on May 11, Similarly, Spice has also filed the Scheme of Amalgamation with the Hon ble High Court of Delhi at New Delhi on May 17, The Scheme shall be effective on and from the last of the dates on which all the required approvals are obtained and the sanctioned Scheme is filed with the Registrar of Companies at Ahmedabad and Delhi respectively. The share swap ratio for the amalgamation has been fixed at 49 equity shares of the Company for every 100 equity shares held in Spice. De-merger of Licenses Pursuant to acquisition of Spice, the Company acquired the operations of Punjab and Karnataka service areas. Your Company already has UAS Licenses in these two service areas, where no operations have been started. Under the circumstances, your Company chose to demerge these two UAS Licenses to an entity eligible as per policy. Consequently, your Company has filed a Scheme of Arrangement on May 11, 2009 with the Hon ble High Court of Gujarat at Ahmedabad to de-merge these two UAS Licenses. However, your Company has, subsequent to this filing, sought a deferment of the proceedings from the Hon ble High Court of Gujarat at Ahmedabad, pending regulatory clarity on the subject. As explained in the relevant note to the Accounts, the carrying cost of these licenses as of March 31, 2009 is Rs. 3, mn. Preferential Allotment Your Directors wish to inform you that at the Extra Ordinary General Meeting held on July 30, 2008, the members had approved issuance on a preferential basis 464,734,670 Equity Shares of face value of Rs. 10/- each for cash at a premium of Rs per Equity Share to TMI Mauritius Limited ( TMI Mauritius ). Pursuant to the said allotment on August 12, 2008 and August 13, 2008, the Company received funds aggregating to Rs. 72, mn. As per the terms of the Share Subscription Agreement executed with TMI Mauritius and others, TMI has been provided certain rights which have been duly incorporated in the Articles of Association of the Company, including a right to appoint one Director on the Board of your Company. Dr. Shridhir Sariputta Hansa Wijayasuriya has been appointed as a nominee of TMI Mauritius on the Board of the Company. De-merger of Passive Infrastructure Your Directors wish to inform you that the Company had filed a Scheme of Arrangement on April 17, 2009 with the Hon ble High Court of Gujarat at Ahmedabad to de-merge its passive infrastructure assets in the service areas of Andhra Pradesh, Delhi, Gujarat, Uttar Pradesh (both East & West including Uttaranchal), Haryana, Kerala, Rajasthan and Mumbai to Idea Cellular Towers Infrastructure Limited (ICTIL), a wholly owned subsidiary, with an appointed date of January 1, Pursuant to the receipt of the High Court Order(s) and filing of the same with the Registrar of Companies on September 29, 2009, passive infrastructure in respect of the above mentioned service areas have been de-merged from the Company to ICTIL and given effect to in the accounts, as explained in the relevant note to the Accounts. Roll-out of services in new service areas Your Directors wish to inform you that, brand!dea has expanded its operations from 11 service areas in March, 2008 to 20 service areas in October, The Company has launched services in Mumbai, Orissa, Tamil Nadu (including Chennai), Jammu & Kashmir, Kolkata and West Bengal. In addition, Aditya Birla Telecom Limited, a wholly owned subsidiary, launched operations in Bihar (including Jharkhand) service area. Subsequent to establishing joint control over Spice, Punjab and Karnataka service areas have come under brand!dea. With the imminent launch of services in Assam and North East service areas, your Company, alongwith its subsidiary and joint venture, will become a Pan India operator, befitting its stature and potential. De-merger of Unified Access Services License of Bihar (including Jharkhand) service area from Aditya Birla Telecom Limited (ABTL) to the Company Your Directors wish to inform that your Company is working towards including operations of its subsidiary and joint venture company in its own fold. The operations of Punjab and Karnataka service areas, which currently are in Spice Communications Limited, are in the process of being merged with the Company. On similar lines, the telecom operations of Bihar (including Jharkhand) service area which are currently in ABTL, a wholly owned subsidiary, are also proposed to be merged with the company. In line with the above, your Board has approved and filed a Scheme of Arrangement with the Hon ble High Court of Gujarat at Ahmedabad on September 24, 2009 for de-merger of the Unified Access Services License (UASL) of Bihar (including Jharkhand) service area, including certain assets and liabilities from ABTL to the Company. New products and initiatives Your Company has made an extensive progress on the marketing front by introducing various unique and innovative products and services across all service areas of operation. Some major initiatives are: To cater to the unique needs of the rural customer, Krishi Voucher was launched in Maharashtra in partnership with Reuters Market Light (RML). This service is available 9

13 IDEA CELLULAR LIMITED 10 exclusively to Idea subscribers and is designed to equip farmers with decision critical information that is easy to access and actionable, thus enhancing their ability to market their produce. Idea was the first operator in India to launch Nokia Life Tools in association with Nokia. Nokia Life Tools is a rural VAS product aimed at enhancing the productivity of the farmers and rural folks by providing Mandi Prices, Weather Information and Agricultural related information over mobile. The information is district specific and of high relevance to the farmers. Idea has tied-up with Indian Oil Corporation (IOC), the largest petroleum company in India, to use their petrol pumps and gas agencies for branding and distribution of Idea SIM Cards and Recharge Vouchers. Alongwith sale of new activations and Recharge Vouchers, Idea has opportunity to display branding across IOC s national network of petrol pumps, gas agencies and delivery boys. Similarly Idea has also tied up with BPCL to use their gas agencies for branding and distribution of Idea SIM Cards & Recharge Vouchers. International Airtime Transfer, a unique VAS service was launched, whereby NRI community can directly recharge the prepaid mobiles of Idea subscribers in India through several international merchants and the web in Gulf, the USA and UK. Idea launched Voice of Idea, an innovative platform which registers responses on caller tones. Integrated with the for the people, by the people ad campaign, it enables Idea subscribers to greet their callers with thought provoking questions of public interest. The subscribers have responded enthusiastically with over 5 mn votes being cast. Idea launched NetSetter Data Cards and Blackberry solutions to cater to its data-savy consumer segments. NetSetter is a GPRS/EDGE compatible USB data modem to access internet, usable with both desktops and laptops with SMS facility. The Blackberry solution brings together smart phones, software and services to provide customers with easy wireless access to , phone, calendar, web and multimedia applications, as well as of other mobile business and lifestyle applications. As one of Idea s significant VAS activities, the Idea HPCL - Automated gas booking solution was initiated and launched by Idea in Kerala Circle. This solution is now also launched in Delhi Circle. As a significant digital initiative, Zac IDEA s first ever interactive virtual character was launched in August, On visiting the activity micro-site, users are prompted to make Zac, fitter and healthier by giving him a 7-day fitness regime over an interactive mobile and web integrated interface. Idea s Fans of Cricket campaign around IPL team Mumbai Indians received an excellent response with more than 44 Lac calls received, with maximum calls coming on the number alloted to Sachin Tendulkar. As Telecom Sponsor of cult youth property - MTV Roadies, Idea launched the Idea Mobile Roadie Challenge, a first of its kind customer engagement programme designed exclusively for Idea customers integrating user experience on Web and Mobile. This activity won kudos at the ABBY Awards and EMVIES. Idea strengthened its brand through a series of media properties like Idea Khatron Ke Khiladi-Level 2, Idea Bharat Ki Shaan on DD, Idea Rocks India 4, Idea IIFA Awards and Idea Filmfare Awards. To further strengthen Idea s association with cricket, Idea sponsored the India - Sri Lanka Cricket tournament and signed up with IPL Teams Mumbai Indians as Founding Partner and Delhi Daredevils as a Principal Partner. Idea continued its clutter breaking advertising by launching 3 new thematic advertising campaigns: Education for all campaign in July 2008, Democracy campaign in December 2008 and Walk when you Talk in June These campaigns are expressions of Idea s brand thought An!dea can change your life. Subsidiaries and Joint Ventures Subsidiaries Aditya Birla Telecom Limited (ABTL) provides GSM based mobile services in Bihar (including Jharkhand) service area, and has a 16% shareholding in Indus Towers Limited. Idea Cellular Services Limited (ICSL) provides manpower services to the Company and ABTL. Idea Cellular Infrastructure Services Limited (ICISL), is a tower company owning towers in Bihar, Orissa, Jammu & Kashmir, Assam and North East service areas and provides passive infrastructure Services in these service areas. Idea Cellular Towers Infrastructure Limited (ICTIL), holds towers de-merged from the Company. ICTIL will subsequently merge into Indus Towers Limited. Swinder Singh Satara and Company Limited (SSS & Co.), is engaged in the business of sale and purchase of Data Cards, Mobile Hand Sets and Fixed Wireless Phones. Joint Ventures Spice Communications Limited (Spice), in which your Company holds 41.09% stake, provides GSM based mobile services in Punjab and Karnataka service areas and also has NLD/ILD operations. Indus Towers Limited (Indus), in which ABTL holds 16% stake, is a joint venture between Bharti group, Vodafone Essar group and the Company (through ABTL), and provides passive infrastructure services in 15 service areas. Your Company had applied to the Central Government seeking exemption from attaching the documents referred to in Section 212(1) of the Companies Act, In terms of the approval granted by the Central Government under Section 212(8) of the Companies Act, 1956, a copy of the Balance Sheet, Profit and Loss Account, Reports of the Board of Directors and Auditors of the subsidiaries for year ended March 31, 2009 have not been attached with the financial statements of your Company. However, the annual accounts of the subsidiary companies will

14 Annual Report be made available to the shareholders of the Company and of the subsidiary companies, who seek such information at any point of time and are also open for inspection by any shareholders at the Registered Office of the Company and of the concerned subsidiary companies. The statement pursuant to the approval under Section 212(8) of the Companies Act, 1956, forms part of the Annual Report. Fixed Deposits Your Company does not accept or hold any deposits and, as such, no amount of principal or interest on fixed deposits was outstanding on the date of the Balance Sheet. Corporate Governance Your Directors reaffirm their continued commitment to good corporate governance practices. Your Company adheres to all major stipulations in this regard as provided in Clause 49 of the Listing Agreement which relates to Corporate Governance. A detailed report on the Corporate Governance, together with, a certificate from Statutory Auditors forms part of this report. Board of Directors Mr. M.R. Prasanna and Mr. Saurabh Misra, Directors resigned from the Board of your Company with effect from October 1, 2008 and October 26, 2009 respectively. The Board places on record its sincere appreciation for the valuable guidance and contribution made by Mr. M.R. Prasanna and Mr. Saurabh Misra in the deliberations of the Board during their respective tenures. Dr. Rakesh Jain was appointed as a Non-Executive Director on the Board of your Company w.e.f. October 26, 2009 to fill in the casual vacancy caused by resignation of Mr. Saurabh Misra. As per the provisions of Section 262 of the Companies Act, 1956, Dr. Rakesh Jain holds office as a Director only till the date of the ensuing Annual General Meeting i.e. the date upto which Mr. Saurabh Misra in whose place he has been appointed would have held the office. Mr. R.C. Bhargava and Mr. P. Murari were appointed as Additional and Independent Directors of the Company with effect from October 20, Dr. Shridhir Sariputta Hansa Wijayasuriya was also appointed as an Additional Non-Executive Director of the Company with effect from October 20, As per the provisions of Section 260 of the Act, they will hold office upto the date of the ensuing Annual General Meeting of the Company. Your Company has received notices under Section 257 of the Act together the requisite deposit, in respect of the above persons proposing their appointment as Directors of the Company. Resolution(s) seeking approval of the Members for the appointment of Dr. Rakesh Jain, Mr. R.C. Bhargava, Mr. P. Murari and Dr. Shridhir Sariputta Hansa Wijayasuriya as Directors of the Company have been incorporated in the Notice of the ensuing Annual General Meeting together with their brief resume(s). Mr. Kumar Mangalam Birla, Mr. Mohan Gyani and Mr. Gian Prakash Gupta retire from office by rotation, and being eligible, offer themselves for re-appointment at the ensuing Annual General Meeting of the Company. Brief resume of the Directors proposed to be re-appointed as required under Clause 49 of the Listing Agreement are provided in the Notice of the Annual General Meeting forming part of this Annual Report. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings & Outgo The particulars as required to be disclosed pursuant to Section 217(1) (e) of the Companies Act, 1956, read with the Companies (Disclosures of Particulars in the Report of Board of Directors) Rules, 1988, are given in the Annexure forming part of this Report. Particulars of Employees In accordance with the provisions of Section 217(2A), read with the Companies (Particulars of Employees) Rules, 1975, the names and other particulars of employees are to be set in the Directors Report, as an addendum thereto. However, as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the report and accounts, as therein set out, are being sent to all the members of the Company excluding the aforesaid information about employees. Any member, who is interested in obtaining such particulars about employees, may write to the Company Secretary at the Registered Office of the Company. Directors Responsibility Statement Your directors affirm that the audited accounts containing financial statements for the financial year are in conformity with the requirements of the Companies Act, They believe that the financial statements reflect fairly the form and substance of transactions carried out during the year and reasonably present the Company s financial condition and results of operations. Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm that: a) in the preparation of the annual accounts, the applicable accounting standards have been followed other than the accounting treatment for the Court approved Scheme(s) of Arrangement which have been explained in the relevant notes to the Accounts; b) the accounting policies have been applied consistently and judgments and estimates made are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period; c) proper and sufficient care has been taken to the best of their knowledge and belief for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; d) the annual accounts have been prepared on a going concern basis. Corporate Social Responsibility The Company is a responsible corporate citizen, and strives to give back to the community it operates in. The Corporate Social initiatives, which the Company has identified and implemented are as under: IIM Ahmedabad Idea Telecom Centre of Excellence Your Directors wish to inform that, your Company has entered into a tripartite agreement with the Indian Institute of 11

15 IDEA CELLULAR LIMITED Management, Ahmedabad ( IIMA ) and the Department of Telecommunications ( DoT ), to set-up a Telecom Centre of Excellence at the campus of IIMA known as IIMA Idea Telecom Center of Excellence (IITCOE). This Centre of Excellence focuses on the areas of telecom policies, governance, regulation and management, especially marketing and customer care. IITCOE will Identify and capture best practices across countries; will enhance human capital through training and teaching programs for policy makers, regulators and the industry; will bring fresh insights from other countries in telecom and in related sectors, and will find solutions to India s specific situation, especially in the development of rural telephony. Pocket PCO project Your Company alongwith International Finance Corporation (IFC), a member of The World Bank Group, has taken an initiative for designing and implementing a Pocket PCO program in India. Idea Pocket PCO is easy to use mobile phone that comes with a special Idea SIM having PCO software embedded in it. The device can be used by the individual as a mobile phone for personal use and as a PCO for business opportunity. The project will help rural micro-entrepreneurs to create pocket Public Call Offices (PCOs) in India s under-served areas. The focus is to provide access to telephony services in rural communities, while creating income generating opportunities. Your company is committed to help people to improve their lives by providing high quality access to telecommunications. FICCI-Aditya Birla CSR Centre for Excellence For the purposes of creating greater awareness and promoting Corporate Social Responsibility ( CSR ), as a part of the corporate mission and values, the Federation of Indian Chambers of Commerce and Industry ( FICCI ), your Company and other group companies of the Aditya Birla Group, viz., Hindalco Industries Limited, Grasim Industries Limited, Aditya Birla Nuvo Limited and Essel Mining and Industries Limited have set-up a CSR Centre called as FICCI-Aditya Birla CSR Centre for Excellence. The object of setting-up the Centre, amongst others, is to create and develop the culture and concept of CSR among corporates, businesses, industries, organizations as well as other institutions, which benefit employees, their families and the society at large through welfare and training programs. Auditors M/s. Deloitte Haskins & Sells, Chartered Accountants retire as Statutory Auditors of the Company at the conclusion of the ensuing Annual General Meeting. The Statutory Auditors have confirmed their eligibility and willingness to accept the office on re-appointment. The necessary resolution seeking your approval for re-appointment of Statutory Auditors has been incorporated in the Notice convening the Annual General Meeting. Auditors Report and Notes to Accounts The Board has duly reviewed the Statutory Auditors Report on the Accounts. The notes forming part of the accounts referred to in the Auditors Report of the Company are self explanatory and do not call for any further explanation under Section 217(3) of the Act. Management Discussion and Analysis Management Discussion and Analysis Report for the year under review, in accordance with the Listing Agreement requirements is presented in a separate section forming part of this Annual Report. Appreciation Your Directors wish to convey their appreciation to all customers, promoters, lenders, trading partners, suppliers and the Government Authorities for their invaluable support and look forward to continued support in future. Your Directors wish to place on record their appreciation to employees at all levels for their hard work, dedication and commitment, which has enabled the company to march ahead. Place: Mumbai Date: October 27, 2009 For and on behalf of the Board Kumar Mangalam Birla Chairman 12

16 Annual Report Annexure to the Directors Report Particulars pursuant to the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rule 1988 are furnished hereunder: A. CONSERVATION OF ENERGY : Electricity is used for working of the Company s network infrastructure equipments. The company regularly reviews power consumption patterns across its networks and implements requisite improvements/changes in the network or processes in order to optimize power consumption and thereby achieve cost savings. Some of the measures adopted by the Company for energy conservation are: (i) Increased battery back-up for cell sites; and (ii) Experimenting the use of deep discharge batteries. B. RESEARCH & DEVELOPMENT (R&D) 1. Specific areas in which R&D is carried out by the Company : Nil 2. Benefits derived as result of the above R&D : Nil 3. Future Plan of action : The Company will explore various options to adopt latest technology/use of equipment for its operations. 1. Expenditure on R&D: a) Capital : Nil b) Recurring : Nil c) Total : Nil d) Total R&D expenditure as percentage of total turnover : Nil TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION: 1. Efforts in brief towards technology absorption, : Development of a skilled team of engineers in the area of radio adaptation, innovation engineering, installation of base station and operation of mobile telecom services. 2. Benefits derived as a result of the above efforts : Cost of installation of base station reduced due to better network planning and designing. Achieved better coverage and high quality of reception. 3. Particulars of imported technology in the last five years : a) Technology imported : No import of technology. However, GSM equipments are imported on regular basis. b) Year of import : Ongoing c) Has the technology been fully absorbed : Not applicable If not fully absorbed areas where this has not taken place, reasons thereof and future plans of action 4. Foreign exchange earnings and outgo : Earnings: Rs mn (Outgo includes CIF value of imports) Outgo: Rs. 19, mn For and on behalf of the Board Place: Mumbai Date: October 27, 2009 Kumar Mangalam Birla Chairman 13

17 IDEA CELLULAR LIMITED Annexure A to the Directors Report Disclosure pursuant to the provisions of the Securities and Exchange Board of India (Employee Stock Option Scheme and Emloyee Stock Purchase Scheme) Guidelines, 1999 Particulars ESOS Tranche I (December 31, 2007) Tranche II (July 24, 2008) a) Options granted 1,99,31,000 61,31,250 b) The pricing formula The exercise price was determined by averaging the daily closing price of the Company s equity shares during 7 days immediately preceding the date of grant and discounting it by 15%. Exercise price - Rs per option The exercise price was determined by averaging the daily closing price of the Company s equity shares during 7 days immediately preceding the date of grant. Exercise price - Rs per option c) Options vested 49,82,750 NIL d) Options exercised NIL NIL e) The total number of shares arising as a Not Applicable Not Applicable result of exercise of options f) Options lapsed 26,55,000 4,54,750 g) Variation of terms of options NIL NIL h) Money realized by exercise of options NIL NIL i) Total number of options in force 1,72,76,000 56,76,500 j) Employeewise details of options granted: i) Senior managerial personnel: Mr. Sanjeev Aga: 17,12,000 Mr. Sanjeev Aga: 4,28,000 ii) Any other employee who received a NIL NIL grant in any one year of option amounting to 5% or more of options granted during that year iii) Identified employees who were NIL NIL granted option, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant k) Diluted Earnings Per Share Not Applicable, Since no option exercised 14